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Concept of Demand in Economics
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Concept of Demand in Economics

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@CrispHope2717

Questions and Answers

What is the primary motivation behind the Veblen Effect?

  • To follow trends set by peers
  • To increase utility from lower-priced goods
  • To satisfy needs for distinction (correct)
  • To save money on consumption

    • What distinguishes the snob effect from the Veblen effect?

  • The snob effect is influenced by the consumption of others (correct)
  • The snob effect depends on the price of goods
  • The snob effect applies only to luxury items
  • The snob effect relates to quantity demanded per income level

    • Which statement accurately describes the demand curve?

  • It represents supply and demand balance
  • It illustrates the relationship between price and quantity demanded (correct)
  • It remains constant regardless of price changes
  • It slopes upwards from left to right

    • What causes the demand curve to slope downwards from left to right?

    <p>The law of diminishing marginal utility</p> Signup and view all the answers

    What does the income effect explain in relation to changes in price?

    <p>Lower prices allow consumers to buy more with the same income</p> Signup and view all the answers

    How does a consumer restore equilibrium between price and utility when price decreases?

    <p>By increasing the amount of the good purchased</p> Signup and view all the answers

    What is the relationship between the price of a commodity and its demand?

    <p>There is a negative relationship.</p> Signup and view all the answers

    At a price of Rs. 16 and an income of Rs. 70,000, what is the consumer’s demand?

    <p>60 units</p> Signup and view all the answers

    What are the two factors that make a want develop into demand?

    <p>Time and price.</p> Signup and view all the answers

    According to the market demand chart, what is the total market demand at a price of $10?

    <p>$22</p> Signup and view all the answers

    How does an increase in consumer income typically affect demand?

    <p>It increases purchasing power and demand.</p> Signup and view all the answers

    Which of the following is NOT a determinant of demand?

    <p>Location of the consumer.</p> Signup and view all the answers

    What is the Bandwagon Effect?

    <p>People following trends and behaviors of others.</p> Signup and view all the answers

    What kind of relationship exists between consumer preferences and demand?

    <p>Demand is directly related to preferences.</p> Signup and view all the answers

    What effect does advertising have on demand?

    <p>It creates demand through awareness.</p> Signup and view all the answers

    In which scenario will the demand for fuel likely increase?

    <p>An increase in the number of vehicles on the road.</p> Signup and view all the answers

    What happens to the quantity demanded when prices are expected to fall further?

    <p>Quantity demanded falls.</p> Signup and view all the answers

    If the price per unit is Rs. 40, and the quantity demanded is 1500 units, what is the total outlay?

    <p>Rs. 60,000</p> Signup and view all the answers

    Which factor does NOT affect the elasticity of demand?

    <p>Scarcity of Resource</p> Signup and view all the answers

    What is the elasticity of demand if a small price change results in a considerable change in quantity demanded?

    <p>Elasticity is greater than 1.</p> Signup and view all the answers

    At which price per unit and quantity combination is the total outlay Rs. 75,000?

    <p>Rs. 25 at 3000 units</p> Signup and view all the answers

    Which statement about elasticity of demand is accurate?

    <p>Elasticity varies based on the specific good.</p> Signup and view all the answers

    What occurs at an elasticity of demand greater than 1?

    <p>Demand is elastic.</p> Signup and view all the answers

    If the price increases from Rs. 10 to Rs. 16 and the quantity demanded for Commodity 1 decreases from 100 to 80 units, how is the elasticity of demand characterized?

    <p>Inelastic</p> Signup and view all the answers

    What is the income effect?

    <p>The change in consumption resulting from changes in real income.</p> Signup and view all the answers

    What happens to the demand for a commodity when its price falls relative to other commodities?

    <p>The demand for the relatively cheaper commodity increases.</p> Signup and view all the answers

    How do new consumers affect the demand for a commodity when its price decreases?

    <p>They increase demand because the commodity becomes affordable.</p> Signup and view all the answers

    Which of the following correctly describes Giffen goods?

    <p>They are inferior goods that paradoxically see increased demand when their prices rise.</p> Signup and view all the answers

    What effect does the price of electricity have on its usage for multiple purposes?

    <p>Higher prices cause a decrease in overall usage across its multiple applications.</p> Signup and view all the answers

    What is an example of market speculation behavior when prices are anticipated to rise?

    <p>Consumers purchase larger quantities expecting future price increases.</p> Signup and view all the answers

    What can be concluded about the relationship between the substitution effect and consumer behavior?

    <p>Consumers substitute less desirable products for more desirable ones when prices fall.</p> Signup and view all the answers

    How does the concept of price effect combine income and substitution effects?

    <p>Price effect results from the interplay of both income and substitution effects.</p> Signup and view all the answers

    Study Notes

    Concept of Demand

    • Desire: A mere wish to possess something.
    • Want: Formed when desire is combined with the ability and willingness to pay.
    • Demand: Created when wants are further bounded by time and price, indicating the quantity a consumer is willing to purchase at a specific price within a given timeframe.

    Determinants of Demand

    • Price of a Commodity: Inversely related to demand; higher prices typically reduce demand.
    • Income of a Consumer: Increases in income enhance purchasing power, positively correlating with demand.
    • Price of Related Goods:
      • Substitutes: An increase in the price of one product may increase demand for its substitute.
      • Complements: An increase in the price of a complementary good can decrease demand for the related product.
    • Tastes and Preferences: Demand is directly influenced by consumer preferences; for instance, a shift from black-and-white to color TVs led to diminished demand for the former.
    • Other Factors:
      • Population Size: Greater population increases demand for many goods.
      • Advertisement: Effective marketing campaigns can stimulate demand.
      • Weather Conditions: Seasonal changes can affect the demand for certain products.

    Consumer Behavior Effects

    • Demonstration/Bandwagon Effect: Consumers tend to follow the purchasing patterns of others.
    • Snob Effect: The desire for exclusive or unique goods driven by prestige.
    • Veblen Effect: High-priced luxury goods attract wealth seekers wanting to display status.

    Market Demand and the Law of Demand

    • Market Demand: The total demand across all consumers at various price levels can be represented through a demand schedule.
    • Law of Demand: Demand curves slope downwards from left to right due to:
      • Law of Diminishing Marginal Utility: As consumers purchase more, the satisfaction per additional unit decreases, prompting higher quantities demanded as prices drop.
      • Income Effect: Lower prices effectively increase consumer purchasing power, allowing for increased quantity demanded.
      • Substitution Effect: Cheaper goods lead to shifts in consumer preference towards them from relatively more expensive alternatives.

    Additional Considerations

    • New Consumers: Price reductions can make certain commodities accessible to new consumers.
    • Multiple Uses of Commodities: The demand for goods with various uses can fluctuate based on price changes.

    Exceptions to the Law of Demand

    • Giffen Goods: Inferior goods that see increased demand when prices rise, as lower-income consumers can only afford them.
    • Future Price Expectations: Anticipation of future price increases can lead consumers to stockpile goods, raising current demand.

    Factors Impacting Demand Elasticity

    • Variability in elasticity indicates that not all goods respond similarly to price changes; luxury goods may see greater demand fluctuations compared to essentials.
    • Factors such as income levels, timing of consumption, number of uses, expenditure share, and consumer habits can influence demand elasticity.

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    Description

    Explore the fundamental concepts of desire, want, and demand in this quiz. Understand how they interact and the role of ability, willingness, time, and price in consumer decision-making. Test your knowledge on how these factors shape consumer behavior.

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